NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Public Offering / Corporate Actions
A company announces a rights issue of 1 share for every 4 held, at Rs 100 per share. Mr. Rao holds 400 shares in demat form on the record date. How many shares is he entitled to apply for under the rights issue, and what is the amount payable if he subscribes fully?
He is entitled to 100 shares and must pay Rs 10,000 to subscribe fully. A 1:4 ratio on 400 shares gives 100 shares, and 100 shares at Rs 100 each costs Rs 10,000.
- A400 shares; Rs 40,000
- B100 shares; Rs 10,000Correct
- C100 shares; Rs 40,000
- D1,600 shares; Rs 1,60,000
Explanation
Entitlement is 400 / 4 = 100 shares. Amount payable is 100 x Rs 100 = Rs 10,000. Rs 40,000 comes from wrongly applying the price to the entire holding of 400, and 400 shares comes from ignoring the ratio.
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